Compounding factor: Difference between revisions
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imported>Doug Williamson m (Spacing) |
imported>Doug Williamson m (Spacing and clarify by defining abbreviations.) |
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(CF). | (CF). | ||
A number greater than one which we multiply a present value by, to work out its [[Future Value]] as: | A number greater than one which we multiply a present value by, to work out its [[Future Value]] (FV) as: | ||
FV = CF x present value. | FV = CF x present value. | ||
The periodic Compounding Factor is calculated from the periodic yield as: | The periodic Compounding Factor is calculated from the periodic yield as: | ||
CF = (1 + periodic yield). | CF = (1 + periodic yield). | ||
For example when the annual effective yield (r) = 6% and the number of years in the total period (n) = 2, then: | |||
For example when the annual effective yield (r) = 6% | |||
and the number of years in the total period (n) = 2, then: | |||
Compounding Factor = (1+r)<sup>n</sup> | Compounding Factor = (1+r)<sup>n</sup> | ||
= 1.06<sup>2</sup> | = 1.06<sup>2</sup> | ||
= 1.1236 | = 1.1236 | ||
== See also == | == See also == | ||
Revision as of 20:39, 3 June 2014
(CF).
A number greater than one which we multiply a present value by, to work out its Future Value (FV) as:
FV = CF x present value.
The periodic Compounding Factor is calculated from the periodic yield as:
CF = (1 + periodic yield).
For example when the annual effective yield (r) = 6%
and the number of years in the total period (n) = 2, then:
Compounding Factor = (1+r)n
= 1.062
= 1.1236
